Reforming the reformers

In the past, I discussed possible econocrat teams under both Awami League and the BNP. I’ve recently had the chance to work with someone mentioned in one of these pieces. In the process, I learnt a lot about the political economy reality (as opposed to bookish theory) of Bangladesh. I’ll reflect on that, and I’m sure my analysis and writing will be affected accordingly.

This post, however, is going to be some pie-in-the-sky thinking about economic policy institutions of Bangladesh. Suppose I were to design the roles and functions of a key economic policymaker — what would I do?

The role of finance minister is pretty clear in most countries: to set the taxes and spending, manage the government’s books, regulate various sectors, you know the drill. Bangladeshi finance minister does all that, except for one major expenditure. He (there has been no female finance minister, and unless someone makes CPD’s Fahmida Khatun one, that’s not about to change) does not set development expenditure.

In the Bangladeshi institutional set up, development expenditure is the purview of the planning minister. Now, sometime the same person acts as both finance and planning ministers — Mr Saifur Rahman, for example, in the last BNP government. But formally, it’s the planning minister who is in charge of development expenditure.

This division of responsibility has potentially adverse macroeconomic consequences. In recent years, development expenditure has made up about 2-4% of GDP, and most of budget deficit. The size of development budget — both announced and realised — thus has macroeconomic consequences. Suppose the finance minister believes that an expansionary fiscal stance is needed, but the development budget ends up being too small, the resultant fiscal policy will clearly be less-than-ideal.

So I would add development budget to the finance minister’s responsibility, with the finance division in charge of preparing and monitoring it.

In practice, Saifur Rahman did it in the past, so I am sure a future finance minister could handle development expenditure as well. In fact, given that much of the development budget is actually primarily about political porkbeef patronage rather than anything to do with development as such, it’s perhaps better to have the finance minister be the keeper of the public coffer (of course, this assumes a sound finance minister like the ones who served from 1991 to 2006, and not the current one).

Now, what will the planning minister, and the planning division (or the Planning Commission), do if they don’t have the development budget?

Well, I would abolish the post of planning minister altogether, and put the prime minister’s economic advisor in charge of the planning division (and the Commission).

Currently, the role of the economic advisor is extremely ambiguous. As many of the readers might know, the current advisor is accused of serious corruption involving the Padma Bridge. The word on the street is that Mr Mashiur Rahman has been in charge of raising money for the Awami League’s re-election fund. I am in no position to comment on such speculations. The relevant point here is, no one has ever articulated clearly exactly what Mr Mashiur does.

So let’s specify a job description for the PM’s economic advisor. In an ideal world, this person will be the prime minister’s one stop economics professor. The PM wants to know about how congestion pricing might work — ask the advisor. The PM is worried about the euro crisis — ask the advisor. The PM wants to know how our farm yields compare internationally — ask the advisor.

Why not ask the finance or communication or agriculture ministers? Well, because they all have their day jobs running those ministries. It’s useful to have a one stop economics tutor for the country’s chief executive.

And to help the advisor come up with sensible and detailed answers, you need some bureaucrats — that’s what the planning division can do.

Of course, that’s not all that the advisor, and the division, should do. The planning division should pro-actively work on what should be on the government’s reform agenda. The government wants to make it easier for poor farmers to access credit, or reform the telecommunication market. How best to do it? Someone needs to be thinking about this stuff. That’s what the planning division should do.

And the advisor should communicate that thinking to the PM.

Now, these reforms thinking cannot be in a vacuum. That’s where the Planning Commission comes in.

A quick history lesson at this point. Bangladesh started its life as a war ravaged country with socialism as a founding principle. The Planning Commission was established to devise a path towards socialism. All that changed in August 1975. After the dust settled, the Zia regime spent much of its time resolving macroeconomic crises — reduce inflation, balance the books, avoid bankruptcy, that kind of stuff. And that’s basically how it was until the early 1990s, when Saifur Rahman finally implemented a set of reforms that had been tried for the previous 15 years. Much of these reforms were textbook Washington Consensus stuff that came from the donors. There was not much scope for indigenous vision stuff. For the rest of the 1990s, under both Saifur and Mr SAMS Kibria, the task was to follow through with the reforms — for example, VAT was introduced in 1991 and the collection mechanism was strengthened under Mr Kibria in the late 1990s. Saifur’s last stint as the finance minister was spent essentially defending against stupid ideas like rental power plants and politicised banks — something Mr AMA Muhith evidently has failed to do.

Nonetheless, going into the 2008 election, Mr Muhith’s party had an economic vision of what Bangladesh could look like in 2021. And the opposition party now has an economic vision for 2031. It’s easy to be cynical and scoff at these visions as political stunt.

But let’s step back and acknowledge that these visions are actually an improvement over the history wars and identity politics. Instead of branding one’s opponent Indian agents or razakars, these visions allow us to judge parties on performance. Of course, it will be a while before this actually becomes commonplace in our political culture. The point here, however, is that it’s a good thing that the parties are putting forward these visions.

The Planning Commission should turn the political rhetoric of these visions into rigorous economic statements. The reforms the economic advisor counsels on the prime minister then should be based on these economic statements — plans if you will.

If the economic advisor is to be the PM’s one stop professor, then the Planning Commission should be the government’s think tank. The Planning Commission should be staffed with economic experts with world class education and solid country experience — we may not have a Kaushik Basu or Raghuram Rajan, but believe it or not, we actually have many economists who fit the bill.

But the advisor, and the planning division, should be more than just public intellectuals. They should be the drivers of reform. They should convince the PM about what is needed, what would work, and how the PM would go about making things happen.

This is obviously harder. But hardly impossible. I said at the beginning that this is pie-in-the-sky thinking. But is it really?

I don’t think the finance minister needs to be an economist. In a parliamentary system, it’s more important that the finance minister has serious political clout to keep his party in check and the leadership qualities to get good work from the bureaucrats (secretary and the senior officials of the finance division have to be economists). Saifur Rahman wasn’t an economist, but he successfully pushed back against Hawa Bhaban on politicised banks and rental power plants. Muhith has failed on both counts. But then again, given the way today’s Awami League works, could anyone else have stood up against the PM?

I think Muhith should be replaced if AL re-elected — he is too old and tired for the job. Someone like Dr Abdur Razzaq — who has done a superb job at food ministry — is quite capable of managing the ministry. But I don’t think AL leadership is amenable for a second coming of Saifur or Kibria.

As long as the BNP leadership is firmly with Mrs Zia, I think it will be more likely to give space for a strong willed finance minister. BNP’s problem is elsewhere. It’s not exactly a party of young leaders. Having been able to get elected in 2008, MK Anwar passes the political clout test. A top bureaucrat in his day, obviously he passes the management test too. He could be a good finance minister — but he may be older than Muhith? A very different route might be to go with someone like Chittagon’s Amir Khasru Mahmud Chowdhury.

– Bangladesh Bank governor

This is actually quite easy. The qualifications and experiences needed are pretty clear: someone with a command of macroeconomic theory and practice, understanding of the data, grasp of banking and finance (and grasp here includes the social networks), and a strong personality to manage the Bank as well as push back against the political or corporate power. While the current governor possesses none of these qualities, there are quite a few people working in the Bank itself, in international institutions (IMF/World Bank/ADB/UN), or in the markets around the world.

– Economic advisor (as I envisage it)

Since this fantasyland, I am going with the dream team option. It may be safer to go with a former (or serving) IMF or WB economist such as Reza Kibria or Sadiq Ahmed. These guys will tell you about mistakes to avoid. And sometimes that’s enough. However, they won’t really come up with bold, innovative idea. For that, you can think of heterodox applied academics such as Mushtaq Khan or Hossain Zillur Rahman.

Personally, I have conservative views on these matters, and would go with the boring Fund/Bank types.

oh dear, i line following your trail of thought but that last diagram really got my goat.

A special access waiting room for donors and private sector, how democratic and world bank serving is that?

Economistic ways of thinking, though understandable revered in a famine ravaged and colonially pauperised culture like ours have their place. but lets keep in mind that there needs to be a healthy epistemic ecology when we envision the future, that touches the visible and less visible.

Evidently youve met someones powerful, what do you make of ECNEC by the way? they seem important to me and absent from your musings

Actually, it’s exactly the opposite of a special access waiting room for donors and private sector. It’s more like an elite force to deal with donor pressure and corporate lobbyists. The linked article (and related literature) makes it clear. And while I wouldn’t call Mahathir Mohammad’s Malaysia exactly democratic, I don’t think his government — one of the prime example — was a donor-corporate puppet.

ECNEC, like any decisionmaking body, is as useful as the members and the leader.